Morale Hazard

Hanming Fang () and Giuseppe Moscarini ()

No 1422, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: We interpret workers' confidence in their own skills as their morale, and investigate the implication of worker overconfidence on the firm's optimal wage-setting policies. In our model, wage contracts both provide incentives and affect worker morale, by revealing private information of the firm about worker skills. We provide conditions for the non-differentiation wage policy to be profit-maximizing. In numerical examples, worker overconfidence is a necessary condition for the firm to prefer no wage differentiation, so as to preserve some workers' morale; the non-differentiation wage policy itself breeds more worker overconfidence; finally, wage compression is more likely when aggregate productivity is low.

Keywords: Overconfidence; Worker morale; Wage-setting policies (search for similar items in EconPapers)
JEL-codes: J31 D82 (search for similar items in EconPapers)
Date: 2003-05
View list of references View citations in EconPapers

Published in Journal of Monetary Economics (May 2005), 52(4): 749-777

Downloads: (external link)
http://cowles.econ.yale.edu/P/cd/d14a/d1422.pdf (application/pdf)

Related works:
Working Paper: Morale Hazard (2004)
Journal Article: Morale hazard (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cwl:cwldpp:1422

Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.

Access Statistics for this paper

More papers in Cowles Foundation Discussion Papers from Cowles Foundation, Yale University
Address: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Contact information at EDIRC.
Series data maintained by Glena Ames ().